Algeria's government said it would not allow Egyptian group Orascom Telecom to sell its Algerian mobile phone unit Djezzy to South Africa's MTN.

MTN shares in Johannesburg were up 6.1 per cent at 107.92 rand on the news, with traders responding to concerns that MTN could have diluted its value by going ahead with the acquisition.

South African officials on Tuesday used a visit to Algiers by President Jacob Zuma to ask the Algerian authorities to let MTN establish a presence in the lucrative North African market by buying Djezzy.

Algeria's government is blocking the Egyptian firm from selling the unit to MTN, a central component in a broader deal that, if it included all of Orascom Telecom's assets, would make MTN the world's third-biggest mobile phone operator.

"The Algerian state holds to its right of pre-emption over the sale of Djezzy and will not allow its purchase by the South African firm MTN," Trade Minister Hachemi Djaaboub was quoted as saying by Algeria's official APS news agency.

In Cairo, Orascom Telecom's shares showed no sign of reacting to the minister's statement. Orascom Telecom declined to comment.

South Africa's deputy trade minister Maria Ntuli, visiting Algeria this week with Zuma's delegation, had called on Algeria to ease the way for MTN to acquire Djezzy, according to a financial source present at a meeting between the two governments.

Algeria blocked the Djezzy sale last month and said it wanted to buy the business, dealing a blow to MTN's plans to buy all or part of Orascom Telecom's activities.

Djezzy is regarded as the jewel among Orascom Telecom's foreign assets, accounting last year for about a third of the Egyptian parent company's revenues. It would give MTN a much-needed foothold in North Africa.

"Without Algeria in the mix, I see little reason for MTN to want to do a deal," said Chris Wood, a portfolio manager at Cape Town-based Prudential Portfolio Managers, which owns MTN shares.

"In light of what was suggested as a possible price being paid, I think this news that MTN walks away is actually net positive. It eliminates the risk of them doing a dilutive transaction."

Algeria's decision to bar the sale followed tensions over back tax claims against Orascom Telecom worth $646.6 million.

The Trade Minister's comments ruled out Orascom Telecom selling Djezzy to MTN directly, but do not exclude the Algerian state taking ownership and selling it on to MTN itself.

Algerian officials have declined to say what plans they have for Djezzy if they acquire it, including whether they will sell a part of it on to another private operator.-Reuters